MARKET WATCH: Crude price slips but holds above $70/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 17 -- Crude prices slipped lower but managed to maintain above $70/bbl June 16 as corporate stock prices fell and the dollar strengthened against the euro.

June 16 “was day two of what many believe may become a sustained market pullback,” said analysts in the Houston office of Raymond James & Associates Inc.

“Crude erased most of its early gains following a slightly disappointing industrial production number indicating industrial demand fell 1.1% vs. the expected decline of 1%,” said analysts at Pritchard Capital Partners LLC, New Orleans. “Natural gas gave back some of [the previous session’s] gain despite the Energy Information Administration’s May Electric Power Monthly report that showed, based on year-to-date figures through the month of March, natural gas is picking up some power generation market share from coal,” they said.

Pritchard Capital Partners said, “Year-to-date total US power generation is down 4.6% from 2008 levels. Net generation attributable to coal-fired plants was down 11.7% year to date, and natural gas-fired generation was up by 1% year to date. In the month of March, coal-fired generation fell 15.3% year on year, but gas-fired generation was up10.4% year on year. The supply response to lower natural gas [prices] can be seen each week in the lower natural gas rig count and by the announced shut-ins, with EnCana Corp. announcing it may shut in 400 MMcfd of production. However, this increase in natural gas demand from power generators is the first sign of any new demand for natural gas (at the expense of coal), and supportive of the recent move upwards in the natural gas price.”

US inventories
EIA said June 17 commercial inventories of US benchmark light, sweet crudes fell 3.9 million bbl to 357.7 million bbl in the week ended June 12, more than the Wall Street consensus of a 2 million bbl decline. The US crude inventory remained above average for this time of year, however. The American Petroleum Institute earlier reported a 1.7 million bbl increase in crude stocks.

Gasoline stocks increased 3.4 million bbl to 205 million bbl in the same period. That’s below average and strongly exceeded the consensus for a 600,000 bbl build. Distillate fuel inventories increased 300,000 bbl to 150 million bbl, above average but below analysts’ expectations of a 1 million bbl jump.

Imports of crude into the US inched up 67,000 b/d to 9 million b/d during the week. Over the 4 weeks through June 12, US crude imports were down 661,000 b/d from the same period a year ago to 9.1 million b/d. Gasoline imports totaled 1.1 million b/d, while distillate fuel imports averaged 191,000 b/d in the latest week.

Input of crude into US refineries was down 73,000 b/d to 14.7 million b/d in the same week, with units operating at 85.9% capacity. Gasoline production rose to 9.1 million b/d while distillate fuel production fell to 3.9 million b/d.

It was “the largest weekly gain” in US gasoline inventories since Jan. 16, said Jacques H. Rousseau, an analyst at Soleil-Back Bay Research. “However, all of the rise was in the ‘blendstocks’ category, which tends to fluctuate more than the finished gasoline total. A strong week of gasoline demand (9.35 million b/d) helped offset rising gasoline production. However, distillate consumption remains very weak. We remain concerned about near-term refining sector fundamentals.”

He said, “The EIA regional data showed a large increase to East Coast production, and we estimate the average refinery utilization rose from 70% to 77% over the past week. …Conversely, West Coast utilization rates fell from 87% to 79% vs. last week, according to our calculations.”

Energy prices
The July and August contracts for benchmark US light, sweet crudes dropped 15¢ each to $70.47/bbl and $71.16/bbl respectively June 16 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also was down 15¢, to $70.47/bbl. Heating oil for July delivery increased 0.94¢ to $1.83/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month gained 1.81¢ to $2.07/gal.

The July contract for natural gas dropped 5.3¢ to $4.13/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 32.5¢ to $4.15/MMbtu.

In London, the new front-month August IPE contract for North Sea Brent was unchanged at $70.24/bbl. Gas oil for July gained $18.50 to $589/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 44¢ to $69.68/bbl on June 16.

Contact Sam Fletcher at [email protected].